How A Relentless Attorney Finally Got Wells Fargo To Modify His Client's Mortgage -- And How You Can, Too

California attorney Wajahat Ali has written a chronicle of how he helped a couple in Sacramento defeat expert stonewalling by Wells Fargo and finally got the bank to modify the couple's mortgage.

The story is revealing on many levels, especially the lengths banks will go to to make those who want a mortgage-mod just give up.

In the end, Wajahat won. Wells Fargo slashed the monthly payments for his clients and let them keep their house (at least temporarily).

What was Wajahat's secret?

He played the litigation card and threatened two things:

Filing for bankruptcy, which would delay the foreclosure process and stop ANY payments on the house.

Suing the bank for violating mortgage-origination laws by allowing his client to just sign a piece of paper saying he made $25,000 a month when he actually made $26,000 a year (Yes, Wells Fargo probably would have had a good counter-case that this was mortgage fraud, but they also had a duty to make sure the borrower could pay).

It ain't over 'til it's over!

I was late when I first met my clients, the Lipkin family, outside my office. I was very late. I couldn't believe I was late. I felt like an imposter. Maybe I was an imposter. I had dressed as professionally as I could: a sophisticated sports jacket, slicked-back gelled hair, elegant briefcase. My straightened posture exuded the charismatic confidence of a seasoned attorney. In my mind, at least.

I extended a hand and introduced myself to a family that was about to have their home foreclosed upon. Carl and Natalie, the husband and wife (I've changed their names), were both in their early thirties. Their three young daughters were with them, wilting in the heat of the parking lot. They met me with open smiles, even though they had just driven ninety minutes from Sacramento on a scorching summer day. I invited them in...

Why did you lie about your income? Because the broker said everyone was doing it

Like many Americans suckered by mortgage deals, the Lipkins were given a "stated-income loan" with an "adjustable interest rate." This nifty trick allowed brokers and their agents to encourage borrowers to essentially make up any income for themselves. Carl was given a loan he would be unable to afford on his actual salary.

Adjustable interest rates were initially low, thereby enticing borrowers with a promise of low monthly payments. When asked what would happen if the rate "adjusted" and the payments increased, borrowers like the Lipkins were told, "Oh, don't worry, by that time your property will have significantly appreciated. You can always refinance the loan and take money from the growing equity."

"We just did what the bank said to do," explained Natalie. "Our broker said, 'Here, sign this paper and you'll get the loan.' So we did. We wouldn't have qualified otherwise."

That same broker was the one who referred them to me to save their home from foreclosure.

On the stated-income loan, the bank claimed Carl was making $25,000 a month. In reality, Carl was netting a salary of $26,000—a year.

"But you knew it was a lie, right?" I asked. "So why do it?

"You're right," Carl admitted. "I mean, I knew I wasn't making that much, but the broker said it would be no problem, that it was what everyone was doing. And they said it was the only way the bank would approve it, so I just trusted him and signed the paper. He said everything would be okay."

"I partially blame ourselves for this," Natalie added. "But then again, I also blame the economy. And I also blame the banks. Ever since we got in trouble, we've been trying to work with them! I want to keep my home. I want to stay in my home. I've tried to keep my home! I want to raise my children in my home."

Everything was great... until the economy collapsed

"In 2008—that's when things went bad," Natalie said. "The market for cars started going down, and almost overnight we lost 50 percent of our income. At the same time, the interest rate adjusted, and we were paying nearly $4,100 a month on our loans."

Their home, meanwhile, which was originally valued at $585,000, had depreciated severely in three scant years. It was now essentially worthless at $270,000.

"We didn't know what to do," Natalie said. "We couldn't make the payments. The banks would call us all the time, asking 'Have you been able to make your payments? Why not? When will you make the payments?' We wanted to keep our home! We really tried to do everything. But the banks, oh my goodness, you get the runaround!"

ATTEMPT No. 1: Apply for a HOPE For Homeowners modification

After they realized they couldn't make the payments, Carl and Natalie first tried for a loan told them to try the HOPE for Homeowners program. They applied, and were denied. The bank told the Lipkins they should have done a manual entry for the loan modification through the loss-mitigation department.

"You never get the same person twice," Natalie said. "It's never the same person when you call back. Then someone calculates the numbers wrong. Someone else gets their information wrong. They're not on the ball on their side—that's what makes it so frustrating. I'll fax them something, and I won't know they didn't receive it even though I got an 'okay' from my fax. They don't even bother telling you—ever. So then they close my file, and I start all over again."

ATTEMPT No. 2: Hire a loan-mod attorney

That's when they hired their first attorney. On the radio, Natalie heard about a law group that did loan modification. She Googled the law group and didn't find any complaints. They hired them.

"This frickin' guy!" Carl exploded. "I gave him sixty-five hundred dollars! And you know what he did? You know what I got for sixty-five hundred dollars? He foreclosed my home! He did nothing. He wouldn't even return my calls! Not one call!...

Sadly, though, the Lipkins' tale of being thoroughly screwed by unethical attorneys preying on desperate clients is all too common. The State Bar of California has released several "ethics alerts" reminding attorneys of their professional responsibilities and of the appropriate way to deal with clients in default. The Recorder, a legal newspaper, had a cover feature on the most notorious offenders, who bilked clients out of millions and did nothing as their homes went into default, were foreclosed, and then sold on the steps of their local courthouse.

ATTEMPT No. 3: Negotiate with the bank

Dealing with the banks to suspend your foreclosure date and secure a proper loan modification is akin to repeatedly ramming your head into a brick wall in the hopes that it will eventually break.

Before coming to me in utter desperation, the Lipkins, like so many Americans, tried in vain to negotiate with their bank directly. They were told that a "negotiator" had been assigned to their file and was "reviewing it." Trying to reach this mythical negotiator by phone proved more difficult than finding Bigfoot. On call after call, the Lipkins were told that the negotiator would be in touch by July 21—the date, coincidentally, of their foreclosure sale.

I informed the Lipkins that the bank was simply using a delay tactic: no negotiator was assigned, and no one would ever call. They were flabbergasted that Wells Fargo would lie to them.

But Wells Fargo is a real piece of work. The Obama administration recently blasted the bank by name as being one of the major lenders lagging behind on their promise to help homeowners keep their properties. After receiving billions of dollars from the government to help struggling homeowners, Wells Fargo turned around and offered loan modifications to a whopping 6 percent of their borrowers.

ATTEMPT No. 4: Hire Wajahat

In order to get anywhere, you first have to make a call to the bank. And because there is no special direct line for lawyers threatening lawsuits—that would make it too easy—this means dialing the customer-service number. "Thank you for calling customer service. We appreciate your business. Due to unexpectedly heavy call volume, we are experiencing a delay. Please stay on the line and a customer-service representative will assist you shortly."

After thirty-five minutes of elevator music a human voice came on the line and asked me about my business. I mentioned "loss-mitigation department" and was transferred. I waited for another ten minutes. A robotic voice calmly asked me to enter the loan number and press pound.

I obliged.

Upon arriving at the desired destination and hearing the first sign of sentient human life on the other side, I started in. "Good morning, my name is Wajahat Ali, from the Law Office of Wajahat Ali, authorized representative of Carl Lipkin. I would like to inquire—"

"Loan number, please."

"Excuse me?"

"What's the loan number, please?"

"Oh, sorry. Here it is. I thought I just gave it to you. Anyway, as I was saying, we have to extend the foreclosure date. I would like to submit a loan-modification package—

"Name, please?"

"Oh, Carl Lipkin. So, as I was saying—"

"Address of the property?"

"Here's the address." I paused after relaying it, anticipating another question. I heard nothing. So once more I introduced myself and repeated my query, only to be hit with—

"Last four of social, please?"

"Here's the last four again. I already inputted those. How about the address? Here it is." I mentioned the address.

There was a pause.

I begin speaking again. "So, as I was saying—"

"And can I verify the address, sir?"

An inner voice filled my head with obscenities.

"I just gave you the address—"

"Yes, but can you please verify it again?"

I obliged. There is nothing more she can ask, I thought to myself. Just to be safe, I paused and let the dead air anticipate any other question. Nothing. Time to move ahead.

The first secret to success: Understand what you're up against

Taking the absurdly high $4,300 mortgage into account, the Lipkins were falling into a monthly deficit. If the bank would simply reduce the monthly payments to a fair reflection of the property's current value and the Lipkins' current financial situation, the family would easily be able to make the monthly payments, keep the home, and continue giving the bank substantial amounts of money.

One would think a financial institution would consider this a viable and wise short term solution, considering the country is mired in one of the worst recessions in recent memory. However, wishful thinking is not one of the options on the bank's automated phone service. One might also assume the banks operate purely out of greed and avarice—but if that were the case, they would simply take the short-term money from the clients instead of wasting resources on foreclosure costs, appraisals, and reselling a house that had been brutally reduced in value.

In fact, shockingly, the banks are mostly apathetic, confused, poorly informed, and poorly managed. The left hand has no idea what the right hand is doing. I imagine a giant warehouse where underlings paid minimum wage simply parrot a written script, crunching numbers in a giant database in which a thousand tubes and wires cross and intersect one another but ultimately lead nowhere.

I called the loss-mitigation number again only to be informed that they could not help me, and that I needed to talk to the bankruptcy department instead. I talked to bankruptcy, who told me to go back to loss mitigation, who then told me to call the trustee agent because they were not authorized to extend the sale date. The trustee agent gave me a random number of some realtor in Arizona who was shocked that I had been given her number. I went back to the loss-mitigation department and asked for the number of their legal counsel, so that I could fax my legal-demand letter. I learned that no bank ever gives you their legal-department phone or fax number; they simply give you an address and ask you to mail your legal complaint. I finally received a number for what I assumed was corporate counsel, who then called me and asked why I was calling her. I told her about the foreclosure; she was sympathetic. But she said "I have no idea why they would give you my number—that is odd. Try this number instead, and best of luck to you and your clients."

I wrote down the number she gave me. Then I realized it was the number for the loss-mitigation department.

I looked at my notebook and saw a dozen numbers written down over the span of three hours. There were arrows pointing from one number to another, including the numerical options I had to punch into the automated message system in order to reach the appropriate department. My notepad resembled a Cy Twombly painting.

The second secret to success: You can always stave off foreclosure by filing for bankruptcy.

A little fact that most people don't know is that if you file an emergency bankruptcy petition, you receive an automatic fifteen-day stay on your foreclosure. It's a borrower's Hail Mary. For fifteen days, the bank cannot foreclose your house, and you have those two weeks to either withdraw your application or complete your bankruptcy. But timing is key. If your foreclosure is scheduled for 9 a.m. and you file the petition at 9:05, you are officially out of luck. If you file at 8:59, then you are saved.

The third secret to success: The bank had a duty to make sure you weren't lying about your income

The courts have held that the onus is on the bank to make at least a reasonable effort to ensure their loans are not oppressive, fraudulent, or liable to default. This is why so many of these "stated-income loans" are in violation of federal and state lending laws, and courts generally find the lenders to be breaching their duty to their clients. Many times, the court rescinds the original contract in its entirety.

The fourth secret to success: Remember that the bank doesn't WANT to foreclose

[Why not? Because foreclosing costs money and forces the bank to take a write-off. The bank has been lying to Wall Street about the value of your loan, and if the bank forecloses, it will have to come clean about that value and take a write-off. And the bank doesn't want to do that.]

So, as a first step, when you finally get someone on the phone, threaten bankruptcy until you get a sale-date extension

"Your supervisors and their supervisors will not appreciate me filing a Chapter 13 bankruptcy that will halt and frustrate your foreclosure proceedings. Furthermore, they will not be happy to discover the pending results of a forensic audit being done on the loan, which will reveal a stated-income loan approved by your bank in direct violation of federal and state lending laws—a total breach of a fiduciary duty owed to your clients. As several recent cases have held, the damages and penalty for such egregious behavior is generally a rescission of the entire loan.

"So, you all have a choice: either foreclose on a worthless property which has no equity and has lost more than fifty percent of its original value, or in good faith negotiate with me and my client for more equitable payment terms and receive some money instead of no money. If you want to play hardball, then don't waste my time. I'm filing a bankruptcy. Now get me your supervisor."

The service agent didn't speak for a moment. "Uh—um. Just... hold on. I'll get a supervisor." Two minutes later, a supervisor came on the line. Before he could get a word off I unleashed my next can of verbal whoop-ass, reiterating nearly word for word what I had just told the underling.

The loan-modification package has been denied. July 22. 2:34 p.m. Reason: not enough income. Thank you. New Sale Date: August 21.

Essentially, some underling had merely inputted the income and expense numbers into the computer, pressed enter, and waited for the result.

The computer recognized that the family was making less money than its expenses—which is utterly predictable and logical, considering they were asking for a loan modification because they were unable to pay their currently exorbitant monthly mortgage—and mechanically turned them down.

Reapply for a modification, get rejected again, and then bring out the big gun: Threaten a lawsuit based on the bank's failure to make sure you could pay

This would be the clash of the titans. The end game. All or nothing.

The winner goes home—literally.

I sat and furiously wrote my final legal demand letter:

There is a trustee sale date scheduled for August 25, 2009. The borrower has already submitted a viable loan-modification package that was confirmed as received. The borrower was informed that his loan modification application was denied on August 14, 2009 because his expenses exceeded his income. This conclusion is blatantly incorrect based on the information provided, which shows the client—with the financial assistance of his domestic partner—made an income that is above his current expenses. This denial, based on an inaccurate assessment of the documents, represents either gross incompetence on the part of the Wells Fargo loan-modification department or a fraudulent misrepresentation in order to deny a viable client a suitable loan modification. The borrower is now re-sending a loan modification package with all the appropriate information requested.

I sent off the new letter along with the same financial documents and waited. The foreclosure sale was only a week away.

A day before the foreclosure date, I called the bank. Would they relent and extend the foreclosure date again? Was this the end of the road for the Lipkin family? Had I been able to score a Slumdog triumph?

I waited.

The robotic voice came on the line.

I waited.

The atrocious elevator music soothed me.

I waited.

A female underling took the call and asked the monotonous, routine questions. I answered them. I paused. I closed my eyes. I hoped for the best. I exhaled. And then I asked about my clients' status.

"Oh, your clients have been accepted into the HAMP. The material was sent out yesterday."

"Uh, what? Excuse me? What about the foreclosure tomorrow?"

"Oh, no, the foreclosure sale has been lifted. There's no foreclosure date anymore. Your clients have been approved for a temporary program. As long as they can make payments of two thousand dollars for three months, they can stay in their home. And the bank will be willing to negotiate after that."